YB new stock pitches (Mon, Feb 16)

Nippon Carbon (5302.T), a Japanese specialty carbon manufacturer founded in 1915, trades at ¥4,815 per share with a ¥53.2 billion market cap, approximately 1x book value, 13x FY24-25 earnings, and offers a 4.2% dividend yield. Backing out ¥40.2 billion in net current assets and investments plus ¥9.2 billion in non-controlling interests, the market values the operating business at just ¥14.4 billion. The core Carbon Products segment generates ¥32.4 billion in revenue split between Fine Carbon (¥20.23 billion, serving semiconductors and batteries) and cyclical Graphite Electrodes (¥12.17 billion for steelmaking), with segment revenue down 5.7% and operating profit down 42.5% year-over-year, leading to conservative FY26 earnings guidance of ¥244.19 (nearly 20x P/E). The real value lies in the 50%-owned NGS Advanced Fibers joint venture with GE Aerospace and Safran, which produces Silicon Carbide fiber for Ceramic Matrix Composites in jet engines; this division grew from ¥2.3 billion revenue and ¥508 million operating profit (22% margin) in FY2023 to ¥4.1 billion revenue and ¥1.48 billion operating profit (35.8% margin) in FY2025. Currently, NGS supplies the CFM LEAP engine (1,802 units delivered in 2025, targeting 2,500/year by 2028) which uses SiC fiber for one component, but the upcoming GE9X engine ramp around 2027 will use approximately 5x more material per engine across five hot-section components, with Boeing expecting 36-60 planes per year initially (70-120 engines annually) from 610 total orders. The transformative long-term catalyst is the mid-2030s CFM RISE engine, expected to use 10x more SiC material per engine including turbine blades, with the technology de-risked by GE's XA100 adaptive cycle engine demonstration. The company announced its first share buyback in over a decade at 5.7% of shares outstanding alongside February 10 full-year earnings, maintains a stable ¥200/share annual dividend since 2019, has diverse ownership with no controlling shareholder, and possesses a poison pill preventing acquisitions above 19.99%. The investor holds a 1.5x basket-sized long position, viewing this as a reasonably priced carbon business with a free call option on aerospace materials revolution, protected by dividend yield and recent buyback despite near-term core business weakness.

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Super Group (SGHC), a Guernsey-based online sports betting and gaming company with a $4.3 billion market cap expecting $2,215 million revenue and $557 million adjusted EBITDA in 2025, is a short position due to what appears to be material EBITDA overstatement related to its crown-jewel South African subsidiary Raging River Trading. SGHC's 2025 20-F filing claims 100% ownership of Raging River, which represents approximately $287 million or 52% of the company's 2025E EBITDA with a 36.5% EBITDA margin, but a May 2024 public notice from South Africa's Western Cape Gambling and Racing Board disclosed that Betway Cares Foundation NPC would acquire a 10.71% direct financial interest in Raging River, reducing SGHC's ownership to 89.29%. A November 2024 B-BBEE verification certificate from SANAS-accredited agency EmpowerLogic, obtained through public records request, confirms Raging River had 10.71% Black ownership as of December 31, 2023, over a year before SGHC's December 31, 2024 fiscal year-end. If SGHC is improperly consolidating 100% of Raging River's financial results rather than 89.29%, the company may be overstating 2025E EBITDA by approximately $30.7 million representing the 10.71% non-controlling minority interest, which is a material misstatement that raises questions about why the company recently changed auditors from BDO to Deloitte and whether past material weaknesses in internal controls have truly been remediated as claimed. Additional concerns include an active Financial Surveillance Department investigation into cross-border capital and related-party flows, a complex corporate structure with subsidiaries in low-transparency jurisdictions and tax havens, the questionable €140+ million Apricot sportsbook software acquisition from entities connected to SGHC's largest shareholder despite South Africa already running on separate proprietary software, and the circular 'DGC sequence' where SGHC granted Digital Gaming Corporation an exclusive U.S. license in February 2021, then reacquired DGC for ~$144 million in April 2021 (closing January 2023) by paying only €11.7 million cash while assuming €121.7 million debt, subsequently selling DGC's revenue-generating B2B content platform to Games Global (owned by SGHC's largest shareholder) while retaining the debt and operating losses. The company also faces disruption from prediction markets that threaten its sports betting business and exposure to rising regulatory and tax costs. Adjusting SGHC's EBITDA for the minority interest and valuing the company at 4.0x-6.0x EBITDA (consistent with its 2024 valuation range when it started missing financial projections) indicates approximately 20%-50% downside risk to $4.25-$6.80 per share, with expectations to significantly underperform the equity market and gaming industry.

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Salzgitter AG (SZG.DE), a German steel producer with €10 billion in FY24 revenue trading at €50/share, represents a compelling opportunity at a 60% discount to its €130/share SOTP valuation, with its 30% stake in copper recycler Aurubis (NDA) alone representing approximately 75% of SZG's current market capitalization. The company operates across five segments: Steel Production (primary steelmaking with 7mT installed capacity producing 6.1mT at 87% utilization), Steel Processing (downstream conversion), Trading (distribution), Technology (led by KHS Group beverage machinery), and Industrial Participation (including the NDA stake, Hansaport port terminal, and freight railway operations). Major catalysts include the January 2026 implementation of CBAM imposing €70-100/ton carbon costs on imported steel (10-20% price increase) and July 2026 import quota reductions from 34.5mT to 18.3mT (nearly halving imports), which combined could drive 20-40% increases in imported steel prices and benefit domestic producers; completion of the €2.3 billion SALCOS Phase 1 decarbonization project in 2027 will end the €1.3 billion internal funding commitment and unlock free cash flow generation; and approximately €1 billion of undervalued CO₂ certificates carried at historical cost that management confirmed could be monetized. The SOTP valuation assigns €3.1 billion to Steel Production (at 5x normalized €51-151/ton EBITDA across scenarios), €432 million to Steel Processing (5x €86m normalized EBITDA), €800 million to Trading (8.5x €100m EBITDA at 2.6% normalized margins), €1.1 billion to Technology (11x EBITDA for the high-quality KHS business), €181 million to other Industrial Participation assets, and €1.7 billion for the NDA stake (adjusted for €500m exchangeable bond at €145.8/share exercise price), with net debt of €472 million and an additional €754 million gained from rediscounting €1.5 billion pension liabilities at 10% versus the 4% book rate. Key risks include steel price volatility and cyclical exposure to global oversupply, execution risk on the €2.3 billion SALCOS program with Phase 2/3 decisions pushed to 2028/2029, potential reversal of favorable CBAM and import quota regulations, and governance constraints from the State of Lower Saxony's 27.9% blocking stake prioritizing employment over shareholder value, though management has demonstrated willingness to monetize non-core assets through the 2024 Mannesmann Stainless Tubes sale and NDA exchangeable bond offering, with takeover interest emerging after a rejected €18.5/share bid from GP Günter Papenburg (16% shareholder) and TSR Recycling consortium in Q4 2024. The market has assigned only 30% of SZG's YTD gains to operating businesses with 70% attributed to NDA appreciation, creating opportunity as structural improvements in European steel dynamics, declining interest rates and energy costs, Germany's €500 billion infrastructure fund, and potential Ukraine rebuilding demand position the company for significant earnings recovery and potential multiple re-rating from current 5-6x peer EBITDA multiples.

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